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Friday, January 15, 2021

Tesla Embedded Flash Upgrade (eMMC)


The National Highway Traffic Safety Administration (NHTSA) recently sent a letter to Tesla saying it has determined that the screens are defective and pose a safety risk because they can cause backup cameras to go dark and defrosters to malfunction. This issue impacts about 159,000 Model S and X vehicles built between 2012 and 2018. 

The problem is not with the screen directly, rather it is with a small flash memory chip in the control unit for the screen. The system reads and writes to this memory often for many activities. As the chip begins to fail, these read and write operations often have to be repeated several times before they are successful and this causes the touchscreen to be slow, unresponsive, or to fail completely. 


Voluntary Recall Covered Most But Not All

Tesla is aware of the issue and sent the above letter to impacted vehicles in November of 2020. Tesla says they are fixing it at no cost and if you've already paid for it, you'll get a reimbursement. Great, problem solved, right? You might notice, in the second paragraph, that Tesla has some caveats. The first caveat is 8 years. Well, it's 2021 and the problem is only in vehicles in 2012-2018, so that's no problem. Tesla didn't make too many cars in 2012 compared to later years and 2012 vehicles have likely already had this done, so their owners are likely getting a refund. The second caveat, on the other hand, is 100k miles; that can be a problem. There are some road warriors out there that love to drive or drive a significant number of miles related to their employment. These folks could easily be over the 100k mark in a 2013+ vehicle.

Because Tesla's voluntary recall from November left out some customers that did nothing wrong, NHTSA is pressuring them to do the right thing and cover everyone. Repairing this only costs $120 in parts for the new flash chip. And, Tesla offers an upgrade to the entire media control unit (MCU). The newer MCU infotainment system allows owners to play more games and to watch Netflix. This means that some people that come in for this, might opt to upgrade for $2500. This means that Tesla could actually make money from this and customers would have a more capable vehicle.  

I don't know what percentage of these 159,000 owners fell into the over 100k miles and how many were (like me) under the 100k mark. 

When I had my 2016 Model X in for service they replace my flash for no cost to me but there were some things that I think you should be aware of if you take your Tesla in for the eMMC upgrade. 


Getting The eMMC Upgrade

As mentioned above, my 2016 Model X recently had the eMMC upgrade. The 8Gig flash was replaced with a 64Gig flash unit. A larger flash will mean that the reads and writes will be distributed over 8 times more space and each sector will have less wear and tear. This alone will improve the lifespan of the unit. Additionally, Tesla has made some software updates to be more selective about what they write to the unit. Hackers have monitored the traffic and found that they were writing a lot of unnecessary kernel debug information.

So happened when I received the upgrade? 

I asked if there was anything that I needed to know. They said, "No, the fob is on the dash and that the invoice will show up in your account soon." I hopped in my car for the drive home. Whoa, the first thing that I noticed was the nav was in bright day mode. I keep the display in the much cooler dark mode (as everyone should). And the map was in gaudy satellite mode. I quickly switched this to the much cleaner roadmap and dark mode. Okay, now that I look at the screen without being grossed out. I tapped nav to select home and it was no longer there. This is not surprising, they replaced a memory card, so I should expect the vehicle to 'forget' some things.

On the drive home I was on the freeway and attempted to turn on Autopilot. It refused to start. Ugh, it's a beta feature and you have to explicitly accept/enable it in the software controls before you can enable it. I had to drive myself the entire way - what is this the 19 hundreds, can you believe it!☺ It was five o'clock traffic and using AP really removes a lot of the traffic stress. I missed having it.

I finally made it home and now I knew there were a few more things they should have told me at the service center. It was time to take account of what needed to be restored. Here is the list of things that my vehicle 'forgot' and 'remembered' as part of this upgrade: 

Things it forgot:

  • Autopilot (had to acknowledge it's beta)
  • It's name
  • All driver profiles including Easy Entry and Curb View
  • Game scoreboard/progress
  • Garage door opening/closing (HomeLink)
  • Wifi settings/password
  • Screen mode: Night mode, satellite view/road view
  • App/mobile access setting ('Controls' and then 'Safety & Security')
  • Location Favorites
  • Recent Trips

Things it remembered:
  • Streaming favorites/stations
  • Binnacle settings

Seems odd that it remembered my streaming stations, but forgot driver profiles. 

I asked my service advisor why they did save and restore these settings. They said that they have a tool that attempts to read the old flash chip and then place those settings into the unit, but the old units are often too corrupt to read. I'm not sure I buy this explanation since the profiles, for example, were still working so this section of the old flash was still readable. Perhaps their tool is not as persistent as it should be or does not cool the flash to improve its readability... 

So, if you go in to get this upgrade, know that will likely lose all of your settings. If you happen to have a few restored, count yourself lucky, but at least you won't be disappointed if you lose them all if you come in with that expectation. 


Profile In The Cloud

Musk has said that they are working on a feature to move driver profiles into your cloud account. This would be a nice addition. It would allow you to hop into any Tesla (like a loaner) and automatically have the car know your seat/mirror/steering wheel settings as well as your favorite streaming services... This would be very handy and it would eliminate the above problem.

Disclosure: I'm long Tesla




Thursday, January 7, 2021

The Tesla Cycle


Today (January 7th), Tesla stock blasted through $800 per share. As it did, Elon Musk's net worth surpassed Jeff Bezos' and Musk became the richest person in the world. 

As you know from our recent post, we've installed Tesla Powerwalls on our home. Today, was the day that I paid for those Powerwalls. 

Putting these two things together, I found it ironic that I was paying a handsome sum to Tesla on the same day that Musk made this achievement. I'm not saying that I should be able to skip the payment just because Musk made guap, just noting the irony. I'm getting a great product from a great company and I'm happy to pay the agreed-upon price, especially since my realized gains from Tesla stock investing is paying for these Powerwalls.

I have been investing in Tesla for a long time. Musk might be the richest person in the world now, but he's also made a lot of other people rich along the way. Some of those people are like me, both investors and customers. I don't want to know how much stock I'd own today if I'd held TSLA in 2016 instead of buying a Model X. Owning the X has been incredibly rewarding, I have no regrets.

This owner shareholder combination got me thinking about how many people were in a similar situation. They were able to afford Tesla products in part because of how well their TSLA investments have done. Or they became shareholders because of how much they love the product and/or mission. This is a positive feedforward system: owners become shareholders, shareholders become customers. Then customer/shareholders sell a fraction of Tesla stock holding to buy a Tesla product, Tesla sales increase, Tesla share price increases, remaining Tesla stock holding value increases... rinse and repeat. I'm calling this the Tesla Cycle. Of course, there is no such thing as a perpetual motion cash machine, nor am I suggesting that you take this as stock advice. But we've been able to do this multiple times to buy multiple Tesla vehicles and our Powerwalls and I wonder how much of Tesla's growth to-date has been driven by this cycle. 

If millions of people are customer/shareholders, this could be a significant flywheel that has brought in significant revenue and growth to the company. If you've hung out on Tesla twitter or the Tesla forums, you've seen that, for many people, Tesla is the first (or only) stock that they've ever owned, some opened a stock account specifically to buy TSLA. Similarly, in these online forums, you've seen that a Tesla car was often the most expensive thing (or at least car) that many of the Tesla fans have ever purchased. Tesla has throngs of fans, if even a small percentage of them are participating in the "Tesla Cycle," it could be a significant factor in the company's growth over the past few years.

Do you think there's anything to this? Did Tesla's stock growth turn individual investors into Tesla product owners? Did the love of the product turn customers into investors? Have you sold Tesla stock to buy something from Tesla?

Wednesday, January 6, 2021

Installing Tesla Powerwalls

On the final day of 2020, we had three Tesla Powerwalls installed. A more detailed post will be coming with energy impacts, usage data, cost... Until then, here are some quick shots from the installation day.








Thanks to everyone that used our referral link and helped us get that red one for free. 

Friday, January 1, 2021

From Diesels To D-Cells :: The Electric Transportation Epoch Has Begun

Transportation is moving from Diesel trucks to D-cell trucks

Transportation is entering a new epoch #TheElectricEpoch

As we ring in the new year we're entering a new era of transportation and Diesel is the old acquaintance that should be forgotten and never brought to mind.

I must start this post with an apology for the title. I liked the "Diesels" to "D-cells" alliteration and ran with it. Obviously, D-cells are not going to be the battery cell of choice for the EV revolution, but they are familiar. The cells to 'drive' EVs are more likely to be pouch, prismatic, or cylindrical cells (like the 2170 or 4680). However, the D-cell is cylindrical so I guess you could call it the 3362 ☺


The Epochs of Transportation 

First, we walked, then we rode horses and carriages; next came the horseless carriage and those horseless carriages have been primarily powered by petroleum products for over 100 years. The decline of the petrol and diesel era has begun and now we're at the dawn of the electrically powered era. This new era will start with personal transportation, move to cargo short-haul, then longer and longer range cargo-hauling semi-trucks, the seas will be next, and finally air. Electric air travel will start with puddle jumper prop planes, expand to turboprops, and finally, a couple decades from now, electrified turbofans making trans-Pacific flights completes the transportation transition.


Are Electric Motors Up To The Task?

Diesel has been the fuel type and engine of choice for hauling and towing. Electric motors are more than up to the task of replacing the hauling and towing work of Diesel engines. In fact, some of the toughest hauling situations, like trains, use Diesel-electric drivetrains. Wait, that says "Diesel." In a Diesel-electric powertrain, the Diesel engine is used to power a dynamo (e.g., electrical generator). The dynamo generates electricity, this electricity is fed to an electric motor, the electric motor provides the traction force to move the train, pulling all the cargo laden boxcars up the mountain pass. This same basic drivetrain design is used for many freight ships often carrying thousands of cargo containers. These Diesel-electric traction systems behave more like a Chevy Volt in range-extended mode than like a Super Duty Diesel pickup. 

So the answer to the question, are electric motors up to the task is a solid 'Yes.' However, powering them with a Diesel generator does not move us to batteries (D-cells). This leads to the next question, are batteries up to the task? 


Are Batteries Up To The Task? 

The question was 'battery' but the topic should be broadened to "energy storage systems" to include ultracapacitors and hydrogen fuel cells. As we move to electrify land, sea, and air travel over the next couple of 

decades, each of these energy storage systems is likely to find at least a niche market. Although fuel cells will find niches, batteries will be the vanguard of the electric epoch, so let's start there. 

I've said it before and it's just as true now, batteries are the crux. The primary reasons that battery electric vehicles are not the dominant vehicle on the roadways today is battery energy density and cost. The good news is that both of these have been trending in the right direction.


These price reduction and technology improvement trends show no sign of stopping. There's more investment in battery research and manufacturing capacity today than we've ever seen before. With each year's advancement, electric cars become more affordable and more profitable. Tesla’s goal of bringing a $25,000 car to market largely rests on battery improvements that would halve the cost per kWh. Battery prices have dropped 90% over the last decade, prices will likely decline another 50% by 2025. Today batteries are about $150 per kWh, this trend places them at $75 per kWh. This means that the upfront cost of a battery-electric car will be about the same as an affordable gas-powered car in around 2022 and more affordable than an equivalent gas car by 2025. 

Cars "fueled" by electricity cost less than 50% per mile to drive and have far less maintenance costs. There are no fuel filters or spark plugs to change, the brake pads last far longer. Some people buy EVs today for environmental reasons, energy independence reasons, or performance reasons; these are the motivated early adopters. However, when battery-electric cars are cheaper to buy upfront and cheaper to operate, they will quickly move from early adopters to the majority of consumers. This will be the decade of the EV. More adoption will drive more investment, will drive more innovation, will drive more adoption, rinse and repeat. 

Lithium metal anodes, solid-state batteries, lithium air... there are many technologies under development that will open even more markets to battery-powered transportation.  

So to answer the question, are batteries up to the task? Today the answer is, for many applications, yes. For other applications, not yet, but the trend is in the right direction. 


The Genie Cannot Be Put Back In The Bottle

Bloomberg says your next car will be an electric truck. Market Watch says EV sales will grow 50% this year. These are just a couple examples of the expected growth for EVs in this decade. Once people own an EV, over 90% of them never want to own another petroleum-powered car again. This market growth will additionally be fueled by state and national restrictions on new gas-powered vehicle sales: 

  • China will aim for carbon neutrality by 2060 (link)
  • Sales of new gas-powered cars banned in California by 2035 (link
  • Biden wants to end gas car sales (link
More than 14 countries and over 20 cities around the world have proposed banning the sale of fossil-fuel-powered passenger vehicles at some future date.


What About Boats and Aircraft?

Electric tugboats have hit the waters in the Port of Tuzla in Istanbul and the ports of Auckland in New Zealand. The torque of the electric motor is perfect for this little boat that's a big powerhouse. Today's batteries are perfect for the short-ranges in which tugs operate. Using electric tugboats remove the particulate matter from the population areas near the ports. And once the boats they are towing are docked, they'll be plugged into shore power, using local grid power. 

As battery technology advances, the number and types of watercraft that are battery-powered will increase too. Just as electric cars started with niche vehicles like the original Tesla Roadster or short-range vehicles like the 2011 Nissan Leaf, electric watercraft will start with niche vehicles like tugboats and short-range personal vehicles like jet skis. And just like cars, the number and types of watercraft that can be electrified will start with a niche and slowly blossom into larger markets each year. Because of its higher energy demand, watercraft electrification will trail auto electric by 10 to 15 years. 

As for aircraft, these are a little more difficult than watercraft, but we're already seeing the first steps. The high reliability of electric motors makes them ideal for the safety requirements of a flight system. Today, there are training airplanes that are electrically powered. The small 2-seat planes and generally used for short student flights. This allows today's battery technology to fulfill this need. Flight schools using electric training planes have significant savings in fuel and maintenance costs. 

Just as with the other vehicles, as the battery tech improves, it will move up the aircraft food chain. When batteries cross the 400 Wh/kg mark, we should see aircraft with a range of over 1000 km. Each improvement in battery gravimetric energy density opens up new application opportunities. For those use cases that can't wait for batteries to improve, there are opportunities for ultracapacitors or hydrogen fuel cells to find their own niche. 

Today, private jets generally get less than the equivalent of 5 MPG, and a 747 flips this around and uses about 5 gallons per mile. Moving these to electrically powered systems 'fueled' by renewable energy sources will remove significant amounts of CO2 from our transportation system. 

The title is 'Diesels To D-Cells' and you might be surprised to learn that there have been aircraft diesel engines or aero diesels. They were used in aircraft in the late 1920s and 1930s, but never widely adopted. So for the sake of this title, I'll be generous and call that a transition from Diesels To D-Cells, albeit indirectly. 


Conclusion

The end of Diesel is coming. Anything Diesel engines can do, electric motors can do better. The current limitations of battery tech is the only reason that there is still a market for Diesel products. Advancements in battery tech are being made each year and there is no sign that this trend will slow-down. With each advancement, battery power vehicles become more and more capable. Personal transportation, freight hauling, watercraft, and flight will all become fully electrified over the next few decades. 

Tuesday, December 1, 2020

Modern EV Era Celebrates 10 Years

By my accounting, the modern electric vehicle (EV) era started 10 years ago this month. It started in December of 2010 when both the 2011 Nissan Leaf and 2011 Chevy Volt rolled onto showroom floors. Since this unveiling, EVs have been making slow but steady progress. More models have been introduced and range and capabilities have continued to increase. Given the historic importance of this milestone, I think it's important to have a little perspective. EVs have tried to become the transportation of choice before and failed. What happened then and will this time be different?


Thomas Edison shows
off a 1914 Detroit Electric

Early 1900s

At the dawn of the automobile era, at the turn of the 20th century, there were several contenders to be the fuel of choice; there were steam-powered cars, electric cars, and gasoline-powered cars. It was not clear if all 3 of these fuel sources would co-exist or if one would dominate. 

Henry Ford's wife, Clara, choose to drive an electric car, rather than a gas-powered car from her husband's company. Gas cars were loud, dirty, and you could break an arm or wrist while trying to crank-start them. Whereas, EVs were clean and quiet and much more suited to a high-class lady of the time.  

Despite Clara's preference (and that of many people like her), after the self-starter engine was invented and the wrist breaking hand crank was removed, the gas-powered-mobile won out and began its century-long domination of transportation.

I find it ironic that the biggest hurdle to the gas engine's adoption (hand cranking) was solved by an electric motor. With this problem solved, gasoline rose up and became the dominant fuel, leaving electric vehicles relegated to golf carts, milk floats, and niche low-speed vehicles.



1974 Electric Prototype

1970s

An oil crisis began in 1973 when the Organization of Arab Petroleum Exporting Countries (OPEC) proclaimed an oil embargo. The embargo targeted several nations. The price of oil more than quadrupled in the US. The embargo caused an "oil shock" that had lasting effects on the global economy and politics, but not significantly on personal transportation.

The crisis created a demand for fuel-efficient cars and alternative fuels. Many electric prototypes were created and DIY electric conversions grew in popularity. Although, battery technology had not advanced significantly from the lead-acid batteries that were used at the turn of the century.

After negotiations, the embargo was lifted in March of 1974. Be it from arrogance or deference, the world seemed to forget about the need for alternative fuels and continued their dependency on a single primary fuel source and we would pay for this again and again with another oil shock at the end of the decade and more to follow in each of the next three the decades ahead. 

None of the various EV prototypes from this decade ever made it into mass production but one ray of light that survived from this era was that the home conversion hobbyists persisted with groups like the Electric Auto Association.*  

 

GM EV1

1990s

The 1990s were the next attempt at an electric revolution. The GM EV1 rolled out in 1996 and was the vanguard of this wave. The EV1 and other EVs of this era had owners that loved them. Regenerative breaking helped extend the range and batteries had had their first major breakthrough with the Nickel-Metal Hydride (NiMH) chemistry, although most buyers (leasers actually) still opted for the cheaper lead-acid option. 

Unfortunately, this attempted revolution was also put down. Automakers sued California to eliminate the state's Zero Emission Vehicle (ZEV) Mandate. The automakers eventually won and most of the EVs were collected and crushed when their leases ended. To no avail, drivers held a mock funeral and candle-lit vigils to try to save their cars; some were even arrested while blocking the trucks carrying their cars to the crusher. Many of the drivers that held vigil would go on to found PlugInAmerica to promote EVs, public awareness, and better EV policy.

 You can see the entire intriguing story of this era in the documentary Who Killed The Electric Car? 

The people that would later go on to found Tesla, noted the devotion that owners had to a compelling EV (more on this later).

This era didn't populate the world with EVs, but it did demonstrate that there's a market of passionate drivers that want EVs which the existing automakers were unwilling to satisfy.



2011 Nissan Leaf SL

2010s

This finally brings us to the modern era of EVs. This era kicked off when both the Nissan Leaf and the Chevy Volt started selling in December of 2010; soon followed by the Tesla Model S in June of 2012. This generation of EVs had a few things that the previous revolution attempts didn't have: 
  • Lithium-ion Batteries
  • Major Automaker Support
  • Tesla
2011 Nissan LEAF Battery Pack

Lithium-ion Batteries

Lithium-ion batteries power most of our modern mobile electronics from smartphones and tablets to smartwatches and earbuds. This has meant that a lot of money was pouring into battery R&D for longer runtime for these devices. EVs were the unintended beneficiary of this mobile digital revolution. All of the EVs coming out in this era are currently powered by Li-ion cells.

Batteries are the most important component in an EV. They are, by far, the most expensive part of the vehicle, they're one of the biggest determiners of range, and avoiding battery degradation is often the limiting factor to performance and recharge time.  

In this era, EVs have finally made it to a production level that they are no longer just dependent on battery advances from the consumer electronics realm. Automakers are funding battery research, partnering with battery companies to build out capacity, and designing custom form factors and chemistries to better meet the demanding cycle-life that EVs require. Advancements here enables lower prices, better performance, longer range, faster charging, longer lifespans... Batteries are the crux.

In the 1990s, NiMH was the advanced battery tech of the time but there was a problem. This battery chemistry was covered by one primary patent and that patent fell into the hands of an oil company. They restricted the license such that NiMH batteries could only be used in hybrid vehicles and not in pure EVs. 

Li-ion batteries have no such patent encumberment. Because Li-ion was used in so many different types of consumer electronics, dozens of companies had patents for various improvements and in many cases, due to legal spats or partnerships, these patents were cross-licensed. Additionally, Li-ion was invented in 1985. This means that many of the initial patents have been long since expired. 

Sidebar: The inventors of the Li-ion battery; John B. Goodenough, M. Stanley Whittingham, and Akira Yoshino; received a Nobel Prize in Chemistry in 2019. 

Major Automaker Support

In the 1990s and aughties, when automakers were required to make EVs, these were generally "compliance cars" made in limited quantity with just enough range to meet state mandates. The limited production made them hard to find even within California and if you lived outside of the state, these cars were nearly impossible to find. However, the Leaf and Volt were being sold nationwide (or worldwide) and not in limited quantities. These were the first EVs that you could walk into a dealership, purchase, and drive off in an EV. That's assuming the dealership didn't try to steer you into the gas car they had on special that week. Dealerships were (and in some cases still are) an obstacle to EV adoption (but that's another story). 

A variety of factors from consumer demand to regional climate goals have pushed automakers to make EVs. Nearly all of the legacy automakers either have EVs on the market or have plans to have them out soon. Here are some of the currently announced plans: 
  • Audi - 20 EV models by 2025 
  • BMW - 25 electrified* models by 2025
  • Daimler / Mercedes - Plug-in option of every offering by 2022
  • GM - 20 EVs by 2023 
  • Fiat-Chrysler -  30 electrified* models by 2022 
  • Ford - 40 EV models by 2022
  • Hyundai - 44 EV models by 2025 
  • Renault-Nissan-Mitsubishi - 12 EV models by 2022 with annual volumes of over 1 million units per year
  • Toyota - 50% of sales in 2028 will be electric
  • VW - 70 EV models by 2028 
  • Volvo - Polestar brand will be 100% electric
* "electrified" in automaker-speak often includes hybrid vehicles (the non-plug-in type). 

Certainly, some of these more aggressive goals will be missed or delayed, but the direction is clear. Automakers are going electric.



Tesla 

Tesla, or a company like it, might seem like an obvious inevitability today, but that was not the case when they started. The prevailing logic was that EVs had been tried in the past and there was no market, that California was not the place for a car company HQ, and that Tesla's $100k+ sports car would sell all of 5 to California billionaires and then the demand would dry up. Variations of this demand narrative continue to this day despite being proven wrong year after year.

Despite the naysayers, Tesla overhauled the way that people perceived EVs. EVs were considered slow. Tesla's cars were really fast. EVs were often weird looking little things. Teslas were sexy and (other than Roadster) were large vehicles. EVs generally has less than 100 miles of range, Teslas had 200+ miles of range. EVs were restricted to a radius of travel equal to about half of their range. Teslas had a vast fast-charging network. Tesla changed the public perception of what an EV could be. Tesla made EVs fun and exciting.

Tesla's business model seemed to be to knock down every objection to the adoption of EVs. And knock them down they did. Arguably, with one exception, affordability. This is one area where they have made great progress going from the $100,000+ Roadster, to the ~$35,000 Model 3 and it's a goal they continue to strive toward. As Tesla ramped their volume, they consistently reduced the price. A $25,000 vehicle was recently announced and expected in 2024. 

There is no question that Tesla has changed the game. People that had never bought a new car were doing the "Tesla Stretch" and buying a new Tesla that was often twice as expensive or more than any car they had purchased previously. People were drawn to Tesla for the performance, the tech, the fun, and the zero-emission factor was almost secondary. Tesla demonstrated that if you made a compelling EV, even an expensive one, there was a market for it.


The Tesla Wake-up Call 

Legacy automakers initially dismissed Tesla as a low-volume niche automaker. As Tesla has continued to make inroads into new markets, the legacy automakers have finally started to take notice. US automakers could initially dismiss Tesla. Volumes started small and Model S mostly ate into the luxury sedan market dominated by German brands such as Audi, Mercedes, & BMW. Next, Model 3 ate into the fuel-efficient sedan market and mostly impacting the Japanese automakers. But Tesla has plans for a truck, a Cybertruck. Trucks are the heart of the American auto industry. The top-selling vehicles in the US are trucks. Tesla can no longer be ignored by GM and Ford. Tesla's products, technologies, and plans are now closely examined by the worldwide auto industry. 


Viva La REVolución

(What Makes This Time Different?)
EVs have been here before, they've gained traction with an enthusiastic early adopter niche, but they were never able to go mainstream; never able to cross the chasm. Several things make this time different. 

With Li-Ion, there is a battery technology that allows for long-range and fast recharge and it's continuing to get better. There's support (to varying degrees) by the major automakers. There's a standard-bearer in Tesla that shows that EVs can be great and there's a swath of start-ups trying to follow in Tesla's footsteps (or even trying to leapfrog them). These start-ups are well funded by venture capital and pre-revenue SPAC-mania from investors with FOMO on the next Tesla. The genie cannot be put back in the bottle.

This time, the EV revolution will not be crushed! 

What a Difference 10 Years Can Make

Looking back on these 10 years, it's amazing how much EVs have improved. Compare the 2011 Nissan Leaf with the upcoming Nissan Ariya, the Ariya has more than 4 times the range. Or comparing the initial Tesla Model S (which won Car of the Year) to the recently announced Plaid Model S. The improvements in tech, performance, and range are amazing. If this trend continues, there will be no reason to even consider a gas car by 2025 for 99% of drivers. We'll move beyond oil.  

I've wondered aloud how good EVs would be today if the automakers had continued their 1990s efforts (or even better, their 1970s efforts). Taking this to its extreme, what if Clara Ford had won the day 100 years ago. Over the last 100 years, we've made great strides in internal combustion technology, we were just working on the wrong problem. What would that alternative history of battery advancement and transportation look like? Would we have battery-powered transcontinental flight by now? 


Disclosure: I am long Tesla
* I'm a member of my local EAA chapter, the OEVA

Tuesday, November 24, 2020

Tesla Investing: Bean Counters vs Visionaries

"Bean Counter vs Visionarie" commissioned image by @lastly_the_squirrel_thing

Since its IPO, Tesla has been a controversial stock. It has attracted bulls and bears. It has been one of the most-watched names out there and Tesla has become the most valuable auto company in the world by market cap. This is despite the fact that Toyota sells about 25 times more cars annually than Tesla. This dichotomy has been a defining feature of the stock and perhaps the company in general. Evaluating the company as an investment, there are two primary camps: the bean counters and the visionaries.

The bean counters look at the balance sheet. They see that (prior to Q3 2019) Tesla lost money in nearly every quarter. They see Tesla's volumes are minuscule compared to other automakers. They see that the company has had to raise capital year after year to fund operations. 

The visionaries see that Tesla has a world-changing vision that could lead to significant growth and profit. They see that Tesla has products that their customers love. They see that Tesla is on the forefront of several trends that will change the way we get from A to B.

I'm not going to pretend to be unbiased here. I'm a longtime Tesla customer and even longer TSLA shareholder. I've appeared on a podcast discussing (arguing) Tesla's quarterly results with (against) 'Montana Skeptic'. 

Why Auto Analysts Got It Wrong 

When many brokerages initiated coverage of Tesla, they looked at the product (likely a Model S at that time) saw 4 wheels and assigned an automotive analyst. As rational as that sounds, Tesla is not a car company, sure they make cars, but they are a technology company and cars are one of their technology delivery 'vehicles' (more on this in the next section). 

Tesla is a "Story Stock." This means that you are not going to find the value of the company by looking at the financial results from past quarters. Instead, it means that the company has big ambitions and the value of the company rests in their ability to deliver (or not) on that vision. This is a radically different method of evaluating a company than looking at fundamentals, comps, price to book, dividend yield, or discounted cash flow and it requires a radically different skillset. 

Tesla Is Not A Car Company 

I assert that Tesla is not a car company. Yes, they make cars, but that is a result of their larger mission, not the ends in itself. So, if Tesla is not a car company, what are they? They are a technology company, they are an end-to-end renewable energy company, they are an engineering company that is not afraid to tackle hard problems. 

To varying degrees, Tesla consists of:
  • A battery pack manufacturing company - Powerwalls, Powerpacks, Megapacks, car battery packs... Tesla purchased ATW Automation in 2020. The company made battery modules and packs for the auto industry.
  • A battery pack management provider - All of the above battery packs need control systems for charging and discharging, heating and cooling
  • A battery cell manufacturing company - Tesla purchased Hibar Systems in 2019 for their battery cell automation solutions. Tesla's current "pilot line" for new cell types qualifies as one of the top 10 cell plants in the world for kWh output. Tesla partners with Panasonic, CATL, LG, and others, but they also have their own cell production efforts. 
  • A battery research and design company - Tesla purchased Maxwell Technologies for their dry electrode innovations in 2019. The battery cell is a fundamental building block for many of Tesla's products. Advancements here leads to better products, more revenue, less capex, and more margin.
  • A manufacturing automation design company - Tesla purchased automation expert Grohmann Engineering in 2016, Compass Automation in 2017, and Perbix, a maker of highly automated manufacturing equipment, in 2017. They don't want to just make things the same way Toyota, GM, and the others do it. They want to rethink manufacturing. This means they cannot just buy the stamps and presses that are available. They have to invent the machines to make their products.
  • An AI hardware company - Tesla developed its own AI inference engine to comprehend the world around the car from the streams of data coming from the cameras and sensors. 
  • An AI software company - Tesla hired Andrej Karpathy away from OpenAI in 2017 and purchased DeepScale Inc. in 2019. DeepScale was known for their innovative energy-efficient deep neural network AI computer vision system.
  • An energy arbitrage company - Tesla's AutoBidder software allows Tesla to buy and sell energy based on grid supply and demand. This is currently used for their industrial-sized battery systems, but someday we might see residential Powerwall ganged together to form a virtual power plant that can earn credits for their owners. 
  • A solar retailer and installer - Tesla purchased SolarCity in 2016
  • A solar cell reacher company - SolarCity bought Silevo Inc. in 2014. 
  • An insurance company
  • A vehicle recharging company that sells home charging equipment
  • A vehicle "refueling" company that deploys and operates a network of fast-charging stations and destination charging
  • A guerrilla marketing company - whether it is launching a car into space, selling short-shorts, smashing windows, or selling Tesla Tequilla, Musk and co. know how to generate buzz in our modern social-media-driven news cycle
  • A glass developer - Tesla has develops specialized glass for their vehicles and solar roof products. As I write this they have a job opening on their website for a Glass Studio Specialist to "work closely with design team on the manufacturing of prototype glass and product development associated with advanced glass compositions and inner layers."
  • A worldwide car "dealership and Service Network" - Unlike most auto manufacturers, Tesla does not have a network of independent dealerships to sell and support their vehicles. This means that Tesla has to provide this service themselves in every region where the vehicles are sold. 
Viewing a company superficially only by its most visible products is a recipe for an incomplete analysis. This type of thinking would have led you to only see Apple as only a computer company, Amazon as only an online bookstore, Google as only a search engine... And today, if you are viewing Tesla as only an automaker, you are missing the majority of the value of the company.

Tesla The Outlier


Tesla stands in stark contrast to traditional car companies. Tesla vertically integrates. They make their own seats, infotainment system, navigation software... sure they still have hundreds of suppliers, but they are component suppliers for Tesla's solutions. Whereas legacy automakers have expertise in drivetrains and manufacturing, and little else. Any hard problems encountered by most automakers are farmed out to their suppliers. The automaker may get the result they are looking for, but they do not develop the in-house skills to further optimize for the next release nor to tackle similar problems that will occur in the future. And whatever solution that supplier designed immediately becomes available to every other competitor that also contracts with that supplier.

The auto industry is in a period of disruption. This means that past results are no longer a valid predictor of future results. The companies that are willing to sacrifice short term gains, to establish a long term portfolio of compelling products will be the long term winner. However, when management is 'graded' only on their short term quarterly results, you are not going to get a viable long term plan.

Moving The Goalposts

Critics have consistently moved the goalposts with regards to Tesla. They said there was _no_ market for EVs. However, when the Roadsters sold, they dismissed this and said there is only a niche market for rich treehuggers; this is the only market and Tesla will remain a bespoke automaker at best. Then Model S came out. It won award after award. It was a reimagining of what a car could be. It will never sell, the touchscreen is too big and people like knobs and buttons, they said. Tesla does not have the supplier agreements to produce more than a hundred per year, they said. Tesla ramped production to 100,000 per year and brought out Model X. With that achieved, the critics conceded the high-end luxury market but said that Tesla could never deliver a high-volume vehicle. Well, Model 3 ranks as the world's all-time best-selling plug-in electric car, with more than 500,000 delivered and Tesla's cars accounted for 81% of the battery electric vehicles sold in the United States in the first half of 2020.

One of the drums the critics of Tesla bang the loudest is Tesla's acquisition of SolarCity. If you view Tesla as just an automaker, the purchase makes no sense. However, if you look at Tesla as an end-to-end energy provider, it's a great fit. Tesla already has stores in malls and other retail locations to sell their cars. Someone buying an EV is far more likely to be interested in solar than the average car buyer. Once you have solar, you might be interested in a Powerwall to store the energy. And at the industrial scale, Tesla could sell massive solar installations and the Powerpacks or Megapacks to store the energy these solar panels produce. The SolarCity acquisition was an investment. It allowed for better utilization of their retail space, it allowed for cross-shopping and up-sales. It was an investment in Tesla's energy storage business.

Now the critics point out that competition is coming. I have two replies to this. One, the legacy automakers don't have the right skillset or engineering talent to make a competitive product. They have a long history of making gas-powered vehicles, they love the rumble and noise; it's a long and difficult path to change the culture at a large company. The half-hearted efforts that they've made to-date are evidence of this. Two, recall that Tesla is not a car company. When a competitor comes out with a car and a potential buyer asks, "Can you sell me solar panels to charge it? And have my solar and charging data all in one app? Does it have over-the-air updates? Can you sell me insurance? Can you sell me a battery pack to mount in my garage to store solar energy and to use during a winter storm black-out? Can I drive coast-to-coast on a fast-charging network?..." A point product is not the same as a full solution.

As of late October 2020, Tesla short-sellers have lost $27B betting against Tesla this year. Perhaps it is time they stop moving the goalposts and admit that they didn't understand the company.

Tesla's Success Is Self-Evident (now)


As I was writing this, Tesla achieved an incredible milestone, they were inducted into the S&P500. This is a major accomplishment for any company. With this milestone, I assert that Tesla has moved through all three stages of truth:

Stage 1: They were a niche player making Roadsters for rich Hollywood types. They were, at best, ignored and, at worse, ridiculed.

Stage 2: Tesla was the target of a massive Fear, Uncertainty, & Doubt (FUD) campaign. As just one example, the Koch brothers (who are deeply embedded in the fossil fuel industry) financed a multimillion-dollar misinformation offensive against electric vehicles. Tesla was the primary target for much of this FUD. These erroneous messages were often prominently placed in search results and occasionally picked up by media outlets. If you believed things like this, EVs polluted as much, if not more, than gas-powered cars, were nearly certain to burst into flames, and had to have their "toxic" batteries replaced every 3 to 5 years.

Stage 3: Now that the UK, California, and other places have put a date certain moratorium on gas and diesel car sales and Tesla has shown that EVs can be made GAAP profitably, there is a wave of fast-follower EV startups and the legacy carmakers are rushing to bring a number of EVs to market within the decade.

Perhaps we've finally come out on the other side of this. After years of the mainstream media predicting Tesla's demise, now we see articles with titles like, "Why Tesla stock could go to $1,000, according to a Wedbush analyst" on Fortune.

Conclusion 

The 'value' of a company cannot always be found in a spreadsheet.

Tesla has shown that there is a demand for EVs and specifically for their EVs. They've shown that they can sustain GAAP profitably and they are being inducted into the S&P 500. These achievements should allow many of the bean counters to now see the value of Tesla. There is a megatrend toward transportation electrification and Tesla is the leader in the space. Add Tesla's ambitions for energy, semi-trucks, autonomous vehicles, robotaxis, and more and you can see why the stock trades at a premium. 

For me, as an investor, when I purchased a Model X in 2016, it became obvious that Tesla was on the path to success and the pack was nowhere to be seen. This was my 3rd EV and I had been following the industry press closely. Tesla had the lead and no one was even trying to catch them. 

At the start of this article, I said that Tesla is a story stock and the value of the company rests in their ability to deliver (or not) on that vision. Tesla has the swagger to attack the best engineering talent. Talented engineers are key to achieving their goals. Combine that with the history of accomplishing things that no other company has been able to bring to market and the future looks bright for Tesla.

Disclosure: I'm long Tesla
This is not investment advice. Do your own research, consult a professional. 

Thursday, October 1, 2020

The 4 Horsemen of the Auto & Oil Industry Apocalypse

It's October, it seems appropriate to start the month off with an epic horror story.

 

The automotive and oil industries are, collectively, the largest industry on the planet. We fight wars for oil resources, their lobbyists have sway over every aspect of our government. The value of assets under their control is worth trillions of dollars... 

Regardless of their massive size, things are about to change. There are four megatrends that will ride roughshod over this behemoth. During times of inflection, giants can fall: Kodak famously missed the digital revolution; Blockbuster missed the transition to streaming. We still take photos, just not with a Kodak camera. We still watch movies, just not from Blockbuster. During this transportation transition, what brands or companies that seem indelible will fall to Death's scythe and fade into the annals of history?

The 4 Horsemen that are upending the 100-year-old status quo are: 

  1. Electrification of Transportation 
  2. Declining Ownership & Mobility as a Service 
  3. Self-driving Cars
  4. Pace of Innovation 

These 4 will shake up the auto and oil industry more in the next decade than we've seen since Henry Ford reinvented the vehicle production line. New players will emerge, some old players will adapt, others will die as we start a new chapter in human history. As a species, we're now evolving beyond petro-sapien and the world will be reshaped. 

Let's look at each of the Doomriders.

Horseman #1 Electrification of Transportation

Our first and biggest harbinger of doom is Electric Vehicles (EVs).

California Governor, Gavin Newsom, issued an executive order on September 23rd, 2020 that requires all new cars and passenger trucks sold in the state by 2035 to be zero-emission. California is one of the largest car markets in the US and if the other gang of 13+ CARB states follow, this will seriously curtail gas car sales. A lot can change in 15 years, but the direction is clear. 

The legacy automakers are heavily invested in their internal combustion infrastructures. The factories and supply chains they've established are not simple to change from combustion vehicles to electrically powered ones. Converting them will be expensive and auto companies are not flush with cash. The assets and know-how that once enabled them to be profitable are now (or are soon to be) stranded assets and liabilities. Legacy automakers have been reducing their dividend payments as their stock prices decline and their debts grow. 

While the legacy automakers are tied to an anchor pulling them down, Wallstreet seems to be tripping over themselves to fund electric car start-ups. Tesla has had round after round of capital raises, most recently a $5B capital raise in 2020, and $2.7B before that in 2019. The market has rewarded Tesla with a higher stock price each time they raise money, viewing these as 'growth accelerators'. This applies to other EV upstarts as well; investors seem far more interested in small start-up companies in the growing EV market rather than large companies in the declining ICE market.

Tesla recently shared the below graph at their Battery Day event. 

This graph is for the 1st half of 2020 and you could argue that 2020 had been anomalous in many ways and not a valid sample for future predictions. However, times of crisis accelerate transitions so perhaps this is a better view of the future. Bloomberg estimated that at least 50% of global car sales in 2040 will be electric. If the trend in the above graph continues, many of the legacy automakers will not survive. 

Several trends are driving EV adoption: 
  • Battery technology has been continuing to improve by 5%-7% per year. This means that each EV generation is slightly more capable than the previous. Range, towing, recharging time... are all related to the battery, and all are improving each year and projected to continue to improve into the foreseeable future. 
  • Battery cost has similarly continued to decline (see graph below). This allows capable EVs to move into lower price-points. A recent Forbes article said that Tesla's upcoming $25,000 EV would be "game over for gas and oil". Additionally, this price reduction allows larger packs, with more range and more performance, to be used in high-end EVs. There are now multiple EVs with more than 500 miles of range announced for 2021. Five hundred miles! 
  • EVs are popular with buyers because they are smooth quiet rides that require less maintenance and are far more affordable to fuel. JD Power reports that EV buyers have very high satisfaction rates and most never want to own another gas-powered car after owning an EV.
  • Government incentives. Many municipalities are encouraging EV adoption to meet CO2 reduction targets. The incentives use a range of carrots and sticks. These could be tax incentives, sales tax waivers, parking privileges, carpool (HOV) lane access even with a single occupant, increased gasoline taxes (making EVs a better alternative)... 
All of these trends are pushing more of the market into electrified transportation, whether the legacy automakers are ready for it or not. The impact of this transition will not only be felt by the auto industry but also gas and oil.

According to TradeArabia, EVs are expected to offset oil demand by 1.2 million barrels per day by 2025. ExxonMobile, once a stalwart of the Dow Jones Index, was recently removed from the index after serving 92 years as a member of the elite company list. The transition to electric 'fuel' is in its infancy, and the impacts are already causing giants to stumble.

Horseman #2 Declining Ownership

“The things you own end up owning you.” ― Chuck Palahniuk, Fight Club

Next on our list of creative destruction is a generational change in how cars are viewed. If you were born in the US before 1990, when you turned 16, you wanted a car. A car meant freedom. Freedom to go see your friends, to go on adventures, to go on dates and (if it went well) to steam up the backseat windows looking for paradise by the dashboard light.

Teens today live in a different world. Much of their social life is online. They don't need a car in order to hang out with their friends. Cars are no longer viewed as the iconic symbol of freedom. A car is just a method to get from A to B (if travel can't be avoided).

The mentality of a car as merely a tool opens up many opportunities for change. If you live in an area with a dense enough population, rideshare or scooters are options for most trips. If you want dinner, meal delivery is only a few taps away on a smartphone; similarly, grocery delivery is just another app. On the rare occasion that you need a car for something like a weekend getaway, you rent one. Collectively, these are called mobility as a service (MaaS). 

As the Fight Club quote goes, “The things you own end up owning you,” and this is especially true with cars. Owning a car is demanding both financially and timewise. Using MaaS means that you don't have to buy a car, pay for gas, buy car insurance, pay for maintenance, fluids, tires, parking... If all of your mobility needs can be met without owning a car, this is appealing to many.

MaaS is easiest in an urban or suburban environment and the percentage of the population in these sections of the country has been steadily increasing for decades. This means that MaaS adoption trends will likely continue to increase too. 

Another trend that is enabling the decline in car ownership is working from home. The pandemic has caused many employers to rethink their office policies. If you are not commuting daily, the need to own a car is also reduced. 


Horseman #3 Self Driving Cars

Our third disruptive horseman (or should that be horseless carriage man) is autonomous cars. This technology is not yet here in any significant manner, but it. is. coming.  And when it does arrive, many fleet managers and vehicle shoppers will not consider buying a car without it. 

This technology puts automakers in competition with big tech companies like Google (Waymo), Amazon (Zoox), and Tesla; as well as a swath of start-ups. This is not a fight that legacy automakers are equipped to win. They will have to find technology partners and hope the partnership is fruitful. Again this is a gauntlet that some legacy automakers may not survive.

This threat is enabled by the first two horsemen. When vehicles are fueled by electricity, they are cheaper to operate. When the driver can be removed, they can run 24/7 further amortizing the cost thereby making them yet again cheaper to operate. The first company to make a seven-nines reliable autonomous driver AI system will be in high demand.


Horseman #4 Fast-Paced Innovation

Our ultimate horseman sits atop the fastest thoroughbred of this apocalyptic harras, Innovation.

Transportation is likely to change more in the next 10 years than it has in the last 100 years. These extraordinary technological advances are causing an epic shift to multiple trillion-dollar industries. Before the emergence of this wave of EVs, starting with the Volt and the Leaf in 2010, the industry had stagnated. California tried to use mandates to force automakers to bring EVs to high-volume production in the 1990s, but the automakers sued the state and had the mandates overturned (See Who Killed The Electric Car?). Fighting innovation with legislation can (at best) delay it, but it's not a winning long term strategy.

Cars of the future will be connected, voice-activated, frequently updated, self-driving, have real-time traffic, streaming content, productivity apps, entertainment, and things that are yet to be invented. The software-driven high technology in-car experience will mean that new software will be needed on a regular interval. The days of releasing a model year and then only touching it again if there's a recall are soon to be over. 

Can automakers attract the talent needed to provide all of this in-car software or will they cede this part of the market to the likes of Car Play and Android Auto?

Expecting a group of laggards and Luddites to change gears and become technology leaders is a big ask. The cultures ingrained in many of these companies will not allow this to happen. Hybrids have been the only significant drive-train breakthrough in decades and even that technology has never crossed the chasm to become mainstream. An industry that is used to a new transmission or valve timing method every 10 years or so, is not prepared to deliver "computers on wheels" that act more like smartphones than cars. 


Conclusion

The giants of the past are getting hit with a perfect storm of change. The role that cars play in our lives is changing, the expectations of personal transportation are changing, the fuel source is changing, the ownership model is changing. Perhaps these giants of the past could have navigated any one of these changes, but the near-simultaneous confluence of all 4 Horsemen will mean that they must adapt quickly or die. Some will acquire or partner with innovative start-ups in hopes of catching up. The culture clash will be enormous and this is unlikely to make it a fruitful alliance. We'll see which companies can reinvent themselves and which will fade into history along with the buggy-whip manufacturers that they once displaced. 

It is not too often that a change this big comes along. We certainly live in interesting times. 

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Creative destruction (German: schöpferische Zerstörung) is a concept in economics that describes the "process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one".

Disclosure: I'm long Tesla